July 10, 2018

Agribusiness in Ukraine: legal trends 2017 - 2018

There’s still the problem of unregulated land market, which makes it difficult to plan long-term investment projects and manage land shares (due to the lack of guarantees for stable prices of such shares, risk of dishonest competitors, or purchase of lease rights to hinder other users). 7,000 attacks on farmers’ property occur in Ukraine every year.

Thus, three areas remain relevant in the agrofood market in 2017: protection of assets (harvest and land plots, protection against raiders, and registration of shares), development of business in Ukraine (purchase of production, processing and storage assets) and entrance in foreign markets. ILF’s portfolio over the studied period has been developed according to this structure.

The first two areas concern large and medium agribusiness, while foreign markets are for rapidly growing medium and small companies. Niche producers of organic products (such as berries) are emerging in the market, capable of competing abroad quality-wise. Agro-holdings (such as Svarog or AgroGeneration) support such businesses through cooperatives or CSR projects. Companies usually implement these projects using internal resources, without involving external legal consultants. The medium segment of the market seeks to capitalize the initially raw materials based business (production and export of agricultural products), adding processing and logistics. This requires a lot of investment for any one company, which prompts them to work together in clusters. Thus, last year 20 producers, processors and service providers (including ILF) established the first Ukrainian cluster - AgroFoodcluster Kharkiv, with the support of the Germany Advisory Group. Its task is to develop value added chains, create high-margin branded regional products and enter European markets with it. This is only the formation of a competitive agrofood market, and the role of lawyers here is not limited to structuring business in Ukraine and abroad and to foreign trade contracts.

This year agro-food importers-exporters have also encountered the global trend of combating money laundering as well as BEPS requirements. The first effect of global changes was the refusal of foreign partners and banks to work with offshore companies and companies not actually present in the country of registration, as well as the closing of several European banks. As a result, a boom in international tax planning and business structuring is expected next year, as well as projects related to cryptocurrency, which is already being used in farmers’ deals.